Costly Cure For Y2K Myopia

By Robert Kuttner

Tuesday, January 4, 2000; Page A15

Even if catastrophic effects of the Y2K bug do not materialize--and so far they don't appear to be doing so--the failure of most computer software designers to have realized that 2000 comes after 1999 was nothing short of astonishing. According to computer-industry and government estimates, this little miscalculation will cost the global economy some $600 billion--and that's without any major catastrophes.

The $600 billion is just the result of businesses and governments having to go back and fix all the computer software that runs everything from nuclear power stations to hospital and bank databases to air traffic control systems. The $600 billion that this little glitch is costing the world economy is some six times the net worth of the Microsoft stock owned by one Bill Gates. If anyone should have seen this coming, Gates should have.

In various accounts of who is responsible for the Y2K problem, there is a complex blame game. Forty years ago, when computing power was very expensive, saving just two keystrokes by rendering dates as two digits rather than four seemed sensible.

Some blame the Pentagon. In the 1960s, the Defense Department, then the largest user of computers, used a data processing standard with two-digit dates rather than four.

But many computer scientists, in government, academia and business were already sounding the alarms. As early as 1971, the government's official committee on data protocols, which evolved into the American National Standards Institute (ANSI), recommended a four-digit standard.

By 1988 ANSI was recommending that four-digit dates be used exclusively. That same year, the government's National Institute of Standards and Technology called for a four-digit format and explicitly warned of the millennium bug. Unfortunately, all of these standards, like so much else about the computer industry, were essentially voluntary.

If there is a private sector villain of the piece, it is of course Microsoft. The early universal operating system, Microsoft's DOS, came into widespread use in the early 1980s. It used a two-digit date format.

One can perhaps excuse that decision, since two-digit dates were still the norm two decades ago. However, as DOS gave way to Windows in the 1990s, there was no good excuse for Microsoft's having failed to shift to a four-digit field.

Indeed, Microsoft's main competitor, Apple, has no Y2K problem, since every Apple computer sold since the introduction of the Macintosh in 1984 has been able to automatically transition to the year 2000.

Three concepts from economics are useful here. The first is what economic historians call "path dependence."

Throughout economic history, inferior technology has often won out, either through superior marketing power or because once imbedded as the standard, the inferior technology becomes hard to displace. We become dependent on the path we're on. Future economic historians will likely cite Windows as an epic case of inferior technology displacing superior technology.

The second concept is the "externality"--a cost (or sometimes a benefit) displaced from a given transaction onto the rest of the economy. When a polluter dumps his waste into the air and water rather than paying to clean it up, society pays.

In this case, Microsoft, purveyor of the standard operating software, has displaced some $600 billion worth of costs onto business, government and personal users.

The third and most pertinent economics concept is the "collective action problem." Despite the genius of the private market, there are some things it can't solve--like deciding how to pay for national defense or determining whether automobile traffic keeps right or left.

Champions of the new information economy argue that cyberspace is self-regulating--government should keep its hands off. But somehow, the libertarian geniuses of this industry, with their great respect for spontaneity and voluntary standards, could not agree that after 1999 came 2000.

Surely this is one case where the cyber economy would have benefited from mandatory government standards.

The writer is co-editor of the American Prospect.

[ENDS]

-- John Whitley (jwhitley@inforamp.net), January 04, 2000